{"text":[[{"start":8.1,"text":"This article only represents the author's own views."}],[{"start":13.04,"text":"Real estate developer China Evergrande Group has been ordered into liquidation, but that process has been slow because most of its assets are in the complex China market. But the situation is more straightforward for Evergrande’s property management arm, Evergrande Property Services Group Ltd. (6666.HK), which is listed in Hong Kong and could be sold off in its existing form. What’s more, the property management arm still holds some value, leading the liquidators to focus on finding potential buyers."}],[{"start":49.089999999999996,"text":"Evergrande’s liquidators invited interested parties to conduct due diligence on the property management arm in January, and asked them to submit proposals by the end of the month, Evergrande Property announced last month."}],[{"start":63.169999999999995,"text":"Following the announcement, several potential buyer names began to circulate, including Citic Capital affiliate Trustar Capital, as well as rival property management firms like China Overseas Property (2669.HK), China Resources Mixc (1209.HK), Poly Property Services (6049.HK), Yuexiu Services (6626.HK), China Merchants Property Operation & Service (001914.SZ) and Onewo (2602.HK), to name a few."}],[{"start":102.72,"text":"Company denials"}],[{"start":105.46,"text":"China Overseas Property and China Resources Mixc immediately denied the rumors. The former said only that it had no specific details on the matter, while the latter directly refuted the rumors as untrue. The other parties did not respond. But most are hardly in ideal position for such acquisitions, given the current weak state of China’s real estate market. On top of that, Evergrande Property itself is fraught with numerous problems and is quite large, meaning an acquisition by one of its rivals could be difficult."}],[{"start":143.6,"text":"Two other candidates to recently emerge, which are less hamstrung by ties to the property market, are private equity company PAG and Guangdong Provincial Tourism, which are both engaging with the liquidators, according to a report last week in Caixin. Some suspect Guangdong Tourism could be the bidder cited in previous reports that said a certain state-owned enterprise in Guangdong was eyeing Evergrande Property. Both Evergrande Property and Guangdong Tourism are based in Guangzhou, capital of South China’s Guangdong province."}],[{"start":178.94,"text":"PAG focuses on the Asia-Pacific region, with more than $55 billion in assets under management. It is widely known in China for its investment in Dalian Wanda Commercial Management, the property management arm of real estate major Wanda. Guangdong Tourism is owned by the Guangdong provincial government, focusing on tourism and scenic spot operations. Its assets include Guangdong China Travel Services, as well as the White Swan Hotel, Baiyun Hotel, and Asia International Hotel, all in Guangzhou. Both parties declined to comment on potential interest in Evergrande Property."}],[{"start":219.98,"text":"Parental drag "}],[{"start":221.97,"text":"The biggest problem facing any acquisition attempt stems from Evergrande Property’s failed parent, which was crushed under billions of dollars in debt. Evergrande Property held 5.88 billion yuan ($847 million) in trade receivables as of last June, according to its latest midyear report from last year. But uncertainty about its ability to collect all of that led the property manager to take an impairment charge of 3.04 billion yuan during the period, with about 2.2 billion yuan of that tied to its exposure to China Evergrande."}],[{"start":259.65999999999997,"text":"At the same time, the liquidating China Evergrande continues to require services from its property management arm for its underlying real estate assets, even though many of those assets remain vacant and uncompleted. The property manager incurred about 228 million yuan in expenses to provide such services in the first half of last year, even though it has been unable to collect payment."}],[{"start":286.90999999999997,"text":"Beyond undermining the property manager’s finances, the liquidation of China Evergrande has also eroded Evergrande Property’s positioning when it comes to competing for new property management contracts. This shows up in its waning effectiveness in activities like bid solicitation and tender submissions, new customer acquisition initiatives and renewal negotiations with existing clients, undermining the company’s brand and pricing power."}],[{"start":315.30999999999995,"text":"Compounding the situation, China Evergrande often offered multi-year property fee waivers to new buyers in the past to boost sales, depriving its property management arm of an important income source. That means Evergrande Property must now absorb those waived fees as a cost. It could also attempt to recover some of the money from property owners, though those waivers are well documented and authenticated, meaning Evergrande Property is unlikely to get much money through that channel."}],[{"start":349.68999999999994,"text":"China Evergrande also previously sold wealth management products backed by its own business directly to property owners through the Evergrande Property platform. The vast majority of those products have since defaulted or become non-performing. And with China Evergrande disavowing liability for those defaults, owners of the wealth management products have directed attempts to reclaim their money towards Evergrande Property."}],[{"start":378.47999999999996,"text":"The many factors working against it, mostly related to its liquidating parent, have also weakened Evergrande Property’s ability to collect management fees from a growing segment of increasingly worried homeowners at properties it manages. That’s put its trade receivables on an upward trajectory, with collection cycles growing longer, further pressuring the company's cash flow and liquidity."}],[{"start":403.47999999999996,"text":"Stable operations, manageable debt"}],[{"start":406.50999999999993,"text":"Despite its many challenges, Evergrande Property's own core operations look relatively solid. Its revenue rose 6.9% year-on-year in the first half of last year to 6.65 billion yuan, while its profit fell by a relatively mild 5.6% to 472 million yuan. Its gross profit margin for the latest reporting period stood at 18%, and its net margin was 7.4%. Such figures look strong compared with China Overseas Property's 17% gross margin and 6% net margin, and Onewo's 13% gross margin and 4.6% net margin during the same period."}],[{"start":453.0899999999999,"text":"Evergrande Property once made a 13.4 billion yuan guaranty payment on behalf of its parent, although that money was subsequently forfeited. But the property manager has already completely written off the amount in its financial records. As of the middle of last year, Evergrande Property had 2.78 billion yuan in cash and reported zero interest-bearing bank borrowings."}],[{"start":478.9299999999999,"text":"Despite its 518 million yuan in net current liabilities at the middle of last year, the company’s independent auditors said Evergrande Property should be able to continue as a going concern after implementing various measures to bolster its liquidity. Now, the company’s acquisition by a deep-pocketed buyer could further restore market confidence, firming Evergrande Property’s chances for a rebirth under new ownership."}],[{"start":514.3499999999999,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1770719067_1903.mp3"}